Wednesday, January 26, 2011

State of the Union Speech Reveals Conflict Between National Needs & National Debt

In his State of the Union speech, President Obama made calls for investing in America's future and maintaining our nation's competitive edge in an increasingly global economy.

To that end, the president called for spending increases in education, high-speed rail, clean energy technology, and high speed internet.

Yet, noting the nation's precarious financial state and the need to reduce federal spending, the president simultaneously called for cutting the deficit by $400 billion over the next decade.

However, the deficit has exceeded $1 trillion in each of the last three fiscal years. So, cutting forty percent of the annual deficit over a ten-year period amounts to spit in the bucket.

Simply put, such an initiative is as ineffective as it is disingenuous.

Those opposing goals seem to put the president's agenda into conflict.

Though the president called on Congress to eliminate earmarks, and vowed to veto any bill that contains them, earmarks amount to just 1-2% of federal spending.

In addition, the president also called for an end to subsidies to oil companies, who, Obama noted, "are doing just fine on their own."

According to filings with the Securities and Exchange Commission, the five largest oil companies made a combined profit of $64 billion in 2009.

It's not justifiable for the government to be subsidizing the oil industry at the expense of other industries. And most conservatives would contend that the government shouldn't be in the business of subsidizing any private enterprise — period.

While the president called for modest cuts to spending, he also called for the biggest increase for R&D funding since the Kennedy Administration.

However, the advantage President Kennedy had back then, in pursuit of putting a man on the moon, was the absence of such an enormous debt. At the end of 1960, the national debt was roughly 55% of GDP. Yet, at the end of fiscal 2010, it stood at 93.4%.

Once again, the nation's needs and its budget realities seem to be in direct conflict.

Ultimately, investing in eduction, research & development and infrastructure are all as vital as they are sound. However, the government is not in a position to replace $1 in cuts with $1 in new spending. A two-to-one ratio won't even be adequate. It would likely take $3 in cuts to justify $1 in any new spending.

That's how bad our nation's debt problem is. It won't be long—perhaps later this year—before the national debt eclipses the size of our nation's gross domestic product.

In addition to his proposed five-year partial freeze in domestic spending, the president also said he supports cutting the Pentagon budget by $78 billion over five years. However, the total defense budget (including Homeland Security) is the single largest budget expenditure, at over $700 billion annually.

Affirming a paltry decrease to Pentagon funding—amounting to cutting roughly 10% of annual defense expenditures over a five year period—gets us nowhere. The reality is that the defense budget needs to be cut in half.

Defense and Medicare are the two places where spending needs to be significantly reigned in to make any appreciable difference to our chronic deficits, as well as the nation's long term fiscal health.

It's worth noting that the president didn't call for adopting any of the proposals of the bipartisan deficit commission he himself created.

Eliminating earmarks or funding for the National Endowment for the Arts, public radio, and public television (GOP favorites) are just window dressing. Such proposals amount to nothing more than grandstanding and political gamesmanship.

These are serious times, for serious people, and serious proposals.

Such proposals need to start with significant cuts to the military budget and Medicare spending. Anything else is as marginal as it is futile.

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